South Korean Government is looking into implementing ‘mandatory report system’ that obligates multinational corporations to report information on ‘transactions that aggressively aim for tax avoidance’. This is part of South Korean Government’s ‘Google Tax Project’ to prevent tax avoidance by multinational corporations. Other top countries such as the U.S. and England have already implemented this system.
When this system is implemented, multinational corporations need to report whenever they develop financial products that receive tax benefits or receive relevant consulting from law firms or accounting firms to National Tax Service (NTS). By doing so, there will be lesser chances of tax avoidance while NTS is able to obtain relevant information at the right time.
According to South Korean Government, Ministry of Economy and Finance (MOEF) and NTS started looking into implementing ‘Mandatory Report System’ as part of BEPS (Base Erosion and Profit Shifting) project that is also called Google Tax Project.
NTS finished working on relevant research and is currently looking into whether it is appropriate to implement ‘Mandatory Report System’ in South Korea. It is planning to propose to MOEF about applying corresponding information to this year’s tax law revision if it believes that such system is necessary in South Korea. NTS’ research report says that it is valid for transactions that aim for tax benefits to report necessary information.
“We received results from research done by an outside company.” said a representative for NTS. “We are currently looking into whether mandatory report system is appropriate within South Korea.”
MOEF is also looking into relevant legislation as the last part of BEPS project. BEPS is composed of 15 smaller projects, and South Korean Government so far completed all of them except for ‘Statistical Analysis (project 11)’ and ‘Mandatory Report System (project 12)’.
Mandatory report system is a system that requires multinational corporations to report information on transactions that aggressively aim for tax avoidance. It requires multinational corporations and law firms and accounting firms to make reports to NTS whenever they develop financial products or carry out particular transactions related to tax avoidance or consulting on taxes.
8 different countries such as the U.S., England, Canada, and Portugal have already implemented mandatory report system.
For example, British Government has law firms and accounting firms report relevant information within 5 days from establishing tax avoidance plan and it has multinational corporations report relevant information immediately after they establish tax avoidance plan. Whenever they fail to report, British Government can impose $1.34 million (1.5 billion KRW) fine.
South Korean Government is also expecting that multinational corporations will attempt wrongful tax avoidance less as they will feel burdened to report necessary information. NTS is expecting that it will be able to solve ‘information asymmetry’ issue with multinational corporations as they can obtain relevant information at the right time. However, there are elements that need to be considered when introducing mandatory report system.
“Mandatory report system can require revision to ‘Framework Act on National Taxes’ or ‘Adjustment of International Taxes Act’.” said a representative for MOEF. “However, we need to consider complicated interests related to our system.”
Staff Reporter Yoo, Seonil | ysi@etnews.com